Local Republicans look at state tax reform

The Grant County GOP and Grant County Federation of Republican Women opened the floor for free market, limited government think tank the Rio Grande Foundation to offer its roadmap to tax reform in New Mexico at a forum Tuesday night. Rio Grande CEO Paul Gessing blamed several facets of the state’s tax structure for its low economic performance compared to surrounding states, but focused on what he said was the most likely reform in coming legislative sessions — that of gross receipts taxes.

In Santa Fe as in Washington, D.C., “tax reform” has been the buzz phrase in governance for years. In 2017, Republican Gov. Susana Martinez called for the New Mexico Legislature to return to the Roundhouse for a special session to not only address the then millions of dollars budget shortfall, but to do so in part through comprehensive tax reform. There is an existing, if evolving, tax reform bill making the rounds in Santa Fe now. Initiated by Republican District 57 Rep. Jason Harper, of Sandoval County, but including input from a bipartisan group of legislators, the bill is purportedly revenue neutral, claims to close loopholes and exemptions and lower gross receipts tax rates to around four percent statewide. In the special session, though, the Democratic Party controlled House of Representatives and Senate passed no such bill, focusing on immediate budget crises on the basis that they felt a special session is too short a time to consider such a sweeping change. The same bill, in earlier forms, met the same fate earlier this year during the 60-day 2017 legislative session, and the year before in the 30-day 2016 session, to many of the same objections.

Tax reform discussions in Santa Fe have arrived at stalemates in the last few years over the question of those loopholes and exemptions, and which should be closed or left open. Gessing said those are the biggest problem with the current gross receipts tax structure.

“What happens is in the good years, when the state is flush, lobbyists and everyone come running to Santa Fe to say, ‘Exempt us,’” he told the small crowd at Tuesday’s forum. “And [Legislature] do. Everybody wants to reap the benefits of government, nobody wants to pay the bill. The GRT has become that in spades.”

One exemption Harper’s bill looks to potentially close is the one that removes gross receipts taxes from unprepared food in grocery stores. This has been the biggest sticking point with Democratic legislators, who look at the move as regressive.

GRT was removed from groceries in 2010 under Democratic then-Gov. Bill Richardson in an attempt to alleviate financial stress on families. To make the cut, gross receipts taxes on other goods and services were increased, according to Gessing, which he — and many Republican lawmakers over the years — said hurt lower-income people more than it helped. It also burdened the state with repaying local governments the money they lost in the state’s move in what was called Hold Harmless money. That has since begun a phaseout process, which hurts Silver City more than any other municipality in the state.

Gessing said that even if it sounds cruel, the grocery tax exemption is a good place for the Legislature to start.

“I know, ‘How can you be so harsh as to tax essential items?’” he said. “Well, you tax the home you live in. You tax the toilet paper, for whatever you use that for. We tax feminine hygiene products. People, certainly on the Democrat side and some on the Republican, started talking last year about increasing the gas tax. We want people to get to work, not be home sitting on the couch because of the price it takes to get anywhere. This would lower that rate, spread that burden, and do some good for local governments while we’re at it. I’m a Libertarian. I don’t like the idea of reintroducing taxes, but I do believe people should be taxed at a lower rate and the burden should be shared.”

Gessing gave a brief history lesson of the gross receipts tax, explaining from his point of view why the state initially chose it over a straight sales tax and why the state cannot get rid of it. Basically, states cannot tax the federal government. And, since so much of the state is made up of federal land and services — like the two national labs, military bases, etc. — exempting them completely would cripple New Mexico state government. Gross receipts taxes serve, then, as a tax on federal government contractors which makes up some of the difference, where a sales tax would miss that money altogether.

The Rio Grande Foundation is technically a nonpartisan 501c3 nonprofit organization — a group which would also lose tax exemptions in Harper’s bill — but one with what Gessing said was a far more open, public ideology.

“We’re upfront about our perspective on these issues,” he said. “A lot of these organizations say they’re nonpartisan but they have ideologies. New Mexico’s problems, in my humble opinion after 11 years at the Rio Grande Foundation, many could be solved by a healthy dose of free markets and limited government.”

Gessing said the foundation is also for no state income tax and a more fair property tax system, but said gross receipts is the battle to pick.

Republican District 38 Rep. Rebecca Dow, who represents a large section of Grant County, served as a mostly silent moderator at Tuesday’s talk. She predicted that folks will hear more and more about tax reform in upcoming legislative sessions.

“There is a will among both parties to reform,” she said. “The question is where to reform.” She said there were “die on the sword” issues for both Republicans and Democrats. And, after the meeting, “some people said the special session wasn’t enough time to discuss tax reform. They can only keep saying that so long, because it is being discussed in the interim all the time.”

Democratic District 28 Sen. Howie Morales confirmed that he was not invited to the forum.